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f e d e r a l r e s e r v e b o a r d

4 6 3

WASHINGTON

  T O

T H E  FEDERAL RESERVE BOARD

D e c e m b e r

  9 » 1 9 3 0

S t .

  6 8 2 4

SUBJECT: R e q u i r e d r e s e r v e s

  o f

  m e m b e r b a n k s

o n

  S u n d a y s

  a n d

  h o l i d a y s .

D e a r

  S i r :

F o r

  y o u r i n f o r m a t i o n ,

  I a m

  e n c l o s i n g h e r e w i t h

  a

  c o p y

o f a

  l e t t e r a d d r e s s e d

  t o M r .

  A t t e b e r y , D e p u t y G o v e r n o r

  a t t h e

F e d e r a l R e s e r v e B a n k

  o f S t .

  L o u i s , w i t h r e g a r d

  t o t h e

  B o a r d ' s

  r e -

q u i r e m e n t t h a t ,

  f o r t h e

  p u r p o s e

  o f

  a s s e s s i n g p e n a l t i e s

  o n d e -

f i c i e n t r e s e r v e s , r e q u i r e d r e s e r v e s

  o f

  m e m b e r b a n k s

  f o r

  S u n d a y s

a n d  h o l i d a y s s h a l l  b e  b a s e d  o n  d e p o s i t l i a b i l i t i e s  a t t h e  c l o s e

o f t h e

  p r e c e d i n g b u s i n e s s

  d a y .

V e r y t r u l y y o u r s ,

E . M .

  M c C l e l l a n d ,

A s s i s t a n t S e c r e t a r y .

E n c l o s u r e

GOVERNORS

  O F A L L

  FEDERAL RESERVE B A M S EXCEPT

  S T .

  LOU I S

  A N D

PHILADELPHIA*

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  6

(COPY) December

  9 1330

S t .

  bS?3

Dear

  M r.

  Attebery;

This will acknowledge receipt

  of

  your le t ter

  of

  November

  29

with regard  t o the  requirement  of the  Board that,  f o r t h e  purpose  of

assess ing pena l t i e s  on  reserve def ic ien cies ,  t h e  required reserves

of  member banks  f o r  Sundays  a n d  hol idays shal l  b e  based  on  deposit

l i a b i l i t i e s  a t t h e  c lo se  of the  preceding business  da y .

As you

  know there

  was

  considerab le ag i ta t ion

  on the

  par t

  of

member banks

  i n the

  lar ger c i t ie s during

  t h e

  pas t

  f e w

  year s

  f o r a

change

  i n the

  Board's Regulations which would permit them

  to

  determine

thei r requ i red reser ves ,

  so f a r a s the

  assessment

  of

  p e n a l t i e s

  i s c on-

cerned,

  on the

  b a s i s

  of

  deposi t s

  a t t he

  opening

  of

  busi ness . This

  r e -

quest

  was

  considered

  by the

  Governors

  of t he

  Federal reserve banks

  and

by the  Board  on  several occasions  b u t  final act ion thereon  was not

taken until October  2 1930  when  t h e  Board voted  to  amend Regulation  D

so a s to  accomplish  s o f a r a s  poss ib le  th e  above purpose.  I n  modifying

th e  regulation, however,  a s  s t a t ed  in ay  l e t t e r  of  November  I f i t w as

no t the

  purpose

  of the

  Board

  t o

  change

  t h e

  amount

  of

  required reserves

used

  i n

  determining pe na l t ie s

  on

  def i c i enc ies .

Some time a f t e r

  th e

  issuance

  of the new

  regu la t ion

  one of the

Federal reserve banks asked

  th e

  Board whether required reserves

  f o r

Saturdays  a n d  days preceding holidays should  b e  repeated  f o r  Sundays

an d  hol idays ,  o r  whether  t h e  requi red reserves  f o r  Sundays  and  holidays

should  be  based  on  deposi ts  a t t h e  close  of  business  on the  immediately

pre ced ing days. This mat ter  was  given careful considerat ion  by the

Board,  a n d i n  order  t o  determine  the  effect which  th e  repeat ing  of

Saturdays' requirements  f o r  Sundays would have  on  required reserves  we

obtained dai ly f igures

  on

  deposi t s

  of

  member banks

  in New

  York City,

an d

  found that

  n e t

  demand pl us time de po si ts over

  t h e

  three-year period

1927-1929 averaged $27,000,000 more

  on

  Saturday mornings than

  o n S a t -

urday nights.

  I t i s

  quite probable that somewhat

  t h e

  same thing holds

t rue

  a t

  banks

  in

  many other places,

  b u t

  whether

  i t

  does

  o r n o t i t i s

evident that deposi ts

  a t t h e

  opening

  of

  business Saturday

  a r e

  d i f f e r e n t

than

  a t t h e

  c lo se

  of

  business ,

  a n d

  required reserves based

  on

  Saturday

morning deposits  a r e  consequently different than reserves based  on Sa t -

urday night deposits.

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  65

I t i s

  c l e a r t h a t

  i f a

  m e m b e r b a n k

  h a s a

  r e s e r v e w i t h

  t h e F e d -

e r a l r e s e r v e b ank  a t t h e  c l o s e  o f  b u s i n e s s S a t u r d a y e q u a l  t o i t s

r e q u i r e d r e s e r v e

  o n i t s

  d e p o s i t s

  a t t h e

  c l o s e

  o f

  b u s i n e s s

  i t i s c o m -

p l y i n g w i t h  t h e l a w s o f a r a s  S u n d a y  i s  c o n c e r n e d .  T o  r e q u i r e  a  bank

t o

  c a r r y

  a

  h i g h e r r e s e r v e

  o n

  S u n d a y t h a n w o u l d

  be

  c a l l e d

  f o r by i t s

d e p o s i t s  a t t h e  c l o s e  o f  b u s i n e s s S a t u r d a y w o u l d  b e  c o m p e l l i n g  i t ,

i n

  o r d e r

  t o

  a v o i d

  a n

  a s s e s s m e n t

  o f a

  p e n a l t y

  f o r

  d e f i c i e n t r e s e r v e s ,

t o  c a r r y  a  r e s e r v e  i n  e x c e s s  o f  t h a t a c t u a l l y r e q u i r e d  b y l a w . T h e

B o a r d d o e s

  n o t

  f e e l t h a t

  i t c a n

  i s s u e

  a

  r e g u l a t i o n w h i c h m i g h t u n d e r

a n y  c i r c u m s t a n c e s p e n a l i z e  a  b a n k  f o r a  d e f i c i e n c y  i n  r e s e r v e s w h en

i t i s

  c o m p l y i n g w i t h

  t h e

  l e g a l r e q u i r e m e n t s

  o f t h e

  F e d e r a l R e s e r v e

A c t .

I t h a s  b e e n o b j e c t e d t h a t  a  b a n k w h i c h  h a s a  r e d u c t i o n  i n i t s

d e p o s i t s  o n  S a t u r d a y , j u s t i f y i n g  a  d e c r e a s e  i n i t s  r e s e r v e b a l a n c e

o v e r S u n d a y , c o u l d  n o t  a v a i l i t s e l f  o f  t h i s r e d u c t i o n  o n  S a t u r d a y

b e c a u s e  o f t h e  f a c t t h a t S a t u r d a y ' s c l o s i n g r e s e r v e b a l a n c e m u s t  b e

m a i n t a i n e d a g a i n s t S a t u r d a y

1

s o p e n i n g d e p o s i t b a l a n c e  a n d a n y r e -

d u c t i o n  i n  t h i s a m o u n t w o u l d c r e a t e  a  d e f i c i e n c y  i n i t s  r e s e r v e  o n

t h e  b a s i s  o f i t s  o p e n i n g r e q u i r e m e n t s .  T h e  B o a r d ' s r e g u l a t i o n

r e l a t e s  t o t h e  a s s e s s m e n t  o f  p e n a l t i e s  f o r  d e f i c i e n t r e s e r v e s  a n d

d o e s  n o t i n a n y w a y  p u r p o r t  t o  c h a n g e  t h e  l e g a l r e q u i r e m e n t s r e g a r d -

i n g  r e q u i r e d r e s e r v e s . I n a s m u c h , t h e r e f o r e ,  a s  b a n k s  d o  a v e r a g e

t h e i r r e s e r v e s o v e r s t a t e d p e r i o d s ,  t h e  l o w e r e d r e q u i r e m e n t s  f o r

S a t u r d a y  i n  t h o s e c a s e s w h e r e d e p o s i t l i a b i l i t i e s  a r e  l e s s  o n S a t -

u r d a y n i g h t t h a n

  o n

  S a t u r d a y m o r n i n g w o u l d ,

  i n t h e

  o r d i n a r y c o u r s e

o f  b u s i n e s s ,  b e  a v e r a g e d  o u t  o v e r  t h e  r e s e r v e c o m p u t a t i o n p e r i o d .

H o w e v e r ,

  a

  b a n k w h i c h l i t e r a l l y f o l l o w e d

  t h e

  F e d e r a l R e s e r v e

  A c t

w o u l d n e c e s s a r i l y h a v e  a  r e s e r v e w i t h  t h e  F e d e r a l r e s e r v e b a n k  a t

t h e

  c l o s e

  o f

  b u s i n e s s e a c h

  d a y

  e q u a l

  t o t h e

  r e q u i r e m e n t s

  o n i t s d e -

p o s i t s  a t t h e  c l o s e  o f  b u s i n e s s .

I f t h e  r e c e n t a m e nd m en t  t o t h e  B o a r d ' s R e g u l a t i o n  D h a d p r o -

v i d e d t h a t  i n  c o m p u t i n g d e f i c i e n c i e s  t h e  r e q u i r e d r e s e r v e b a l a n c e s

o f  e a c h m e m b e r b a n k  a t t h e  c l o s e  o f  e a c h  d a y  s h a l l  b e  b a s e d  o n i t s

d e p o s i t b a l a n c e s  a t t h e  c l o s e  o f  b u s i n e s s  t h e  p r e c e d i n g  d a y ,  w h i c h

d e p o s i t b a l a n c e s  a r e o f  c o u r s e  t h e  s a m e  a s a t t h e  o p e n i n g  o f  b u s i n e s s

o n t h e  c u r r e n t  d a y , t h e  q u e s t i o n u n d e r c o n s i d e r a t i o n m i g h t  n o t  h a v e

a r i s e n .  I f w e  a d m i t t h a t m e mb e r b a n k s  a r e  r e q u i r e d  t o  c a r r y  a r e -

s e r v e w i t h  t h e  F e d e r a l r e s e r v e b a n k s  o n  S u n d a y s  i t  l o g i c a l l v f o l l o w s

t h a t r e q u i r e d r e s e r v e s  o n  s u c h d a y s s h o u l d  b e  c a l c u l a t e d  o n t h e  pamm

b a s i s  a s f o r a n y  o t h e r d a y s ,  i . e . , o n  S un d ay m o r n i n g d e p o s i t s , w h i c h

a r e t h e  s a m e  a s  d e p o s i t s  a t t h e  c l o s e  o f  b u s i n e s s  o n  S a t u r d a y .

Y o u

  s t a t e

  i n

  y o u r l e t t e r t h a t

  y o u d o n o t

  f i n d t h a t

  t h e

  p r e s e n t

o r  f o r m e r r e g u l a t i o n m a k e s  a n y  s p e c i f i c r e f e r e n c e  t o  m e m b e r b a n k s

b e i n g r e q u i r e d

  t o

  c a r r y r e s e r v e s

  o n

  S u n d a y s

  a n d o n

  h o l i d a y s b a s e d

  o n

t h e i r d e p o s i t l i a b i l i t y  a t t h e  c l o s e  o f  b u s i n e s s  o n t h e  p r e c e d i n g

d a y .  T h a t  i s  t r u e ,  o f  c o u r s e ,  b u t i t h a s  b e e n  t h e  p r a c t i c e  i n t h e

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past

  to

  repeat Saturday's reserve requirements

  f o r

  Sunday,

  and

this meant that  t h e  Sunday's re qu ir ed re se rv es were based  on de-

p o s i t s

  a t t h e

  close

  of

  busi ness Saturday. This

  i t

  would seem

conforms  t o t he  in t en t  of the  Federal Reserve  A ct  which presumably

intended that banks should maintain required reserves with

  t h e F e d -

eral reserve banks  a t a l l  times  o r be  subject  t o a  penal ty  f o r d e -

f i c i e n c i e s . Under your proposal,

  y ou

  would require

  a

  bank

  t o

  carry

a  reserve  on  Sunday based  on  deposi ts  a t t he  close  of  business

Friday, which

  t h e

  Board feels

  i s n o t

  consistent with

  th e

  provisions

of the

  Federal Reserve

  Ac t .

Inasmuch  a s  member banks  a r e  permitted  to  average their  r e -

quired reserves over given periods

  the

  necess i ty

  of

  knowing actual

required reserves  f o r  Sundays  and  holidays during business hours  on

t h e

  preceding days

  i s no t o f

  great importance except when

  a

  reserve

computation period ends

  on

  Sunday

  o r a

  ho li da y. Reserve computation

periods

  f o r

  banks

  i n

  central reserve

  a n d

  reserve cit ies never

  end on

Sunday  a n d  reserve computation periods  f o r a l l  other banks  a re on a

semi-monthly basis.

  I t i s

  f e l t , the re fo re , tha t

  t h e

  Board 's require-

ment would  n o t  seriously inconvenience member banks  i n  view  of the

comparative infrequency with which reserve computation periods

  end

on  Sundays  o r  holidays.

Th is le t te r  was  presented  to and  unanimously approved  by the

System's Committee

  on

  Bank Reserves.

  I n

  accordance with

  a

  fu r ther

recommendation

  of the

  Committee

  a

  copy

  of

  t h i s l e t t e r

  i s

  being sent

t o

  each Federal reserve tank.

Very truly yours,

E .  M.  McClelland,

Assistant Secretary.

M r.  0. M.

  Attebery,

Deputy Governor,

Federal Reserve Bank,

S t .

  Louis,

  Mo.